{"id":217696,"date":"2022-02-25T14:36:25","date_gmt":"2022-02-25T12:36:25","guid":{"rendered":"https:\/\/www.myza.co.za\/south-africas-carbon-tax-rate-goes-up-but-emitters-get-more-time-to-clean-up\/"},"modified":"2022-02-25T14:36:25","modified_gmt":"2022-02-25T12:36:25","slug":"south-africas-carbon-tax-rate-goes-up-but-emitters-get-more-time-to-clean-up","status":"publish","type":"post","link":"https:\/\/www.myza.co.za\/press\/south-africas-carbon-tax-rate-goes-up-but-emitters-get-more-time-to-clean-up\/","title":{"rendered":"South Africa’s carbon tax rate goes up but emitters get more time to clean up"},"content":{"rendered":"
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Following a decade of consultation and public debates, South Africa introduced a carbon tax in June 2019. Treasury faced strong opposition<\/a>, especially from energy intensive businesses. But the country\u2019s ratification<\/a> of the Paris Climate Agreement<\/a> in November 2016 signalled the government\u2019s commitment to responding to climate change and gave impetus to implementing the carbon tax. <\/p>\n

In line with the international \u201cpolluter pays\u201d<\/a> principle, the tax attaches a cost to greenhouse gas emissions. The idea is to change the behaviour of large emitters.<\/p>\n

Burning fossil fuels for electricity production accounts for the largest share<\/a> of South Africa\u2019s carbon emissions, followed by transport, and the industrial production of materials such as cement. Coal makes up 75%<\/a> of the country\u2019s primary energy supply. It\u2019s not surprising, then, that South Africa is among the top 15<\/a> largest per capita emitters in the world.<\/p>\n

Numerous modelling exercises<\/a> were conducted to determine the appropriate carbon tax rate, which started at a base rate of R120 (currently less than US$8) per ton carbon dioxide equivalent (tCO\u2082e) emissions. This compares poorly with international standards<\/a> of US$40 to US$80 a ton by 2020. And as a result of all the tax-free allowances built into the carbon tax calculation, the effective rate could be as little as R6 (US$0.4) per tCO\u2082e emissions.<\/p>\n

Treasury acknowledged<\/a> that this rate was low, but wanted to allow large emitters time to transition to cleaner technologies. The rate was increased annually by inflation plus 2% and reached R134 (around US$8) per tCO\u2082e by the end of 2021.<\/p>\n

The urgency of the climate crisis<\/a> was overshadowed by the COVID-19 pandemic for a while. Nevertheless, the South African government displayed a renewed climate focus over the past year. <\/p>\n

First, a Presidential Climate Commission<\/a> was created to chart a pathway for a net-zero, climate resilient economy by 2050. Next, cabinet approved the National Climate Change Bill<\/a> for tabling in Parliament. <\/p>\n

In the run-up to the 26th international climate change conference (COP26) held in Glasgow in November 2021, South Africa raised its targets for greenhouse gas emissions. These are contained in the revised Nationally Determined Contribution<\/a> submitted under the Paris Climate Agreement. <\/p>\n

The climate negotiations held at COP26 resulted in a \u201cwatershed\u201d<\/a> moment in South Africa\u2019s energy story. The European Union, France, the UK, the US and Germany pledged funding<\/a> of R131 billion (US$8.5 billion) to South Africa. This climate financing is meant to help South Africa phase out its use of fossil fuels, especially its heavy reliance on coal, and phase in renewable energy.<\/p>\n

Policy developments<\/h2>\n

In February 2022, two important policy spotlights have focused on South Africa\u2019s carbon tax. First, the Climate Change Bill was formally introduced in parliament on 18 February. It heralds an \u201ceffective climate change response and a long-term, just transition to a low-carbon and climate-resilient economy\u201d<\/a>. <\/p>\n

Second, the National Budget Speech<\/a> on 23 February provided more clarity on issues that affect carbon taxpayers. Here are the main points:<\/p>\n

Carbon tax rate increase:<\/strong> The finance minister announced an increase to the carbon tax rate to R144 (about US$9), effective from 1 January 2022. To uphold South Africa\u2019s COP26 commitments<\/a>, the rate will increase each year by at least US$1 until it reaches US$20. From 2026, government intends to escalate the carbon price more rapidly every year to reach at least US$30 by 2030, and US$120 beyond 2050.<\/p>\n

Delaying the roll-out of the second phase:<\/strong> The carbon tax is being implemented in three phases, with the second phase originally scheduled to start in January 2023. But the finance minister extended the first phase by three years until 31 December 2025. Until then, taxpayers will continue to enjoy sizeable tax-free allowances which reduce the carbon tax liability. Although the minister did not provide reasons for pushing back the next phase, this might have been done to give taxpayers more time to navigate the complex carbon tax regime. <\/p>\n

As a result of delaying the second phase, some sectors will remain beyond the reach of the carbon tax for now. These include agriculture<\/a>, forestry and other land use and waste sectors, as well as Eskom, the state-owned power utility. Eskom had factored in the projected cost of the carbon tax in its proposed 21% increase<\/a> in electricity prices. It remains to be seen if Eskom will now accordingly reduce the price hike.<\/p>\n

Carbon budgets:<\/strong> The Climate Change Bill will make it compulsory for taxpayers to participate in the carbon budget system. This process allocates a greenhouse gas emissions allowance to an emitter for a specific period of time. The company\u2019s actual emissions arising from its operations should stay within the budgeted allowance. <\/p>\n

Emitters that have participated in the voluntary carbon budget system are entitled to an additional 5% tax free allowance. Once carbon budgets become mandatory, this allowance will fall away. Those who exceed their mandatory budgets will pay a tax penalty.<\/p>\n

The finance minister also announced the following tax changes:<\/p>\n